Netflix foretells the future of content distribution with new streaming-only plan

Netflix today announced a revision to its subscription tiers that simultaneously increased the price of its DVD-by-mail plans, and introduced a new bottom-tier plan solely for streaming TV and movies.

Similar to the streaming-only plan Netflix launched in Canada in September, Netflix subscribers will pay $7.99 a month for unlimited access to the Netflix Instant Streaming library. Previously, the cheapest plan cost $8.99 per month and included one-at-a-time DVD rentals as well.

That plan has now been bumped up to $9.99, and the two-DVDs-at a time plan has gone from $13.99 to $14.99. As the number of DVDs included in the plan rises, so too does the price increase. Netflix has tiers going all the way up to eight DVDs at a time, and that has risen from $47.99 to $55.99.

The introduction of the new streaming-only plan highlights a major shift in user behavior. In short, there are no DVD-only plans, but there is now a plan that involves no DVDs at all. Streaming has graduated from a companion service to one that can stand on its own.

"The fact is that Netflix members are already watching more TV episodes and movies streamed instantly over the Internet than on DVDs, and we expect that trend to continue," Jessie Becker, Vice President of Marketing at Netflix said today.

The next big question is whether Netflix will graduate from being a complement to pay TV subscriptions to a real "cable cutting" solution.

"Netflix itself has positioned itself not as being a substitute for television viewing but as a complementary service," Philippe Dauman, President and CEO of Viacom said in Viacom's third quarter earnings call recently. "And that is the way it is being used. I think it's remarkable that in the teeth of a powerful recession that we went through, continued viewership of subscription television has held up as well as it has."

Of course, some pay TV companies view over-the-top distribution like Netflix Instant as the obvious choice for providers in the future.

"If you started today and the choice was to launch ten satellites like us and DirecTV have done, which are going to cost you $3 billion to launch a satellite...you're better off starting Netflix," Charles Ergen, CEO and Founder of Dish Network. "I mean, the answer might be given where the marketplace is, that you're better off starting Netflix and saving your $3 billion for servers and programming contracts. So I think the world is changing. And my focus and...well, our challenge to our management team is we have to adapt to that."